R E S E A R C H A R T I C L E
Subsidiary Initiatives in the Institutional Environment
Julia Hamprecht•Jan Schwarzkopf
Received: 1 April 2012 / Revised: 5 May 2013 / Accepted: 7 November 2013 / Published online: 28 January 2014
Springer-Verlag Berlin Heidelberg 2014
Abstract We study subsidiaries of a MNC and research why they implement
initiatives that deviate from organizational values of headquarters. Initially we relied only on the concept of institutional duality and expected that pressures in the institutional environment and values of headquarters explain the agency of the subsidiaries. But the results of our extensive participatory observation showed that the organizational values of subsidiaries (rather than those of headquarters) helped explain the subsidiaries’ actions. In conclusion, we find that there are limits to the predictive power of the concept of institutional duality. Our study shows that a distinction between values of headquarters and values of subsidiaries is necessary in order to understand the agency of subsidiaries. We suggest a concept of ‘institutional trinity’ that distinguishes between these two values as well as pressures in the institutional environment. Our research dem-onstrates that an MNC can benefit from a subsidiary that develops its own organizational values. If headquarters is subsequently ready to adopt some of these subsidiary values, it may be able to adapt more easily to a changing institutional environment.
Keywords Climate change Institutional duality Institutional theory
Subsidiaries
J. Hamprecht J. Schwarzkopf (&)
Group for Sustainability and Technology, Department of Management, Technology, and Economics, Swiss Federal Institute of Technology, Zurich, Switzerland e-mail: julia.schwarzkopf@gmail.com
1 Introduction
Studying a large multinational car manufacturer, we observed that it took a noncommittal overall position on the issue of climate change. However, a few of its national sales and distribution subsidiaries, independently and individually, engaged in climate change mitigation activities, which included calculating their
carbon footprint and offering CO2 offsetting to their customers. Headquarters
found these initiatives puzzling: Its general standpoint was that its national sales and distribution subsidiaries had other things to worry about than environmental issues, especially given the economic crisis and decreases in both sales and profits.
The initiatives of these subsidiaries also challenged recent contributions that conceptualize MNCs as intra-organizational fields, where—as Kostova et al. (2008) argue—strong isomorphic pressures exist for common practices, so that subsidiaries are often ‘‘obligated to comply’’ with a certain practice ‘‘mandated by
the parent’’ company (Kostova and Roth2002, p. 216). In general, earlier research
has shown that MNCs define environmental strategies at the headquarters level,
and then roll associated practices out to their subsidiaries (Christmann 2004;
Christmann and Taylor 2001; Yang and Rivers 2009). However, our
observa-tions—that selected subsidiaries proactively implemented climate change
initia-tives despite their headquarters’ noncommittal position—challenges these
established findings.
Initially, we assumed our observations might be explained by the concept of institutional duality, which suggests that subsidiaries need to ‘‘conform to both host country and MNE pressures for legitimacy when adopting organizational practices
or strategy’’ (Hillman and Wan 2005, p. 323). We noted that this concept was
originally developed based on an in-depth analysis of an MNC with a set of monolithic and pervasive values, characterized as follows in the first paper on the subject by Kostova and Roth (2002):
The company had a very pervasive and paternalistic organizational culture, which reduced the potential organizational culture variation across units within the company […]. The company was a centralized and headquarters-dominated organization. (p. 221)
However, in the multinational car manufacturer that we analyzed, we did not observe monolithic organizational values, but rather some variation of values across units. Thus our research question is: In which circumstances do subsidiaries implement initiatives that deviate from the organizational values prevailing at their headquarters?
We employ an analytic induction method to address this research question, which enables us to lay out our initial theoretical perspective clearly and to develop empirically grounded propositions. Our findings suggest that the concept of institutional duality is insufficient to explain the differences that we observed in the subsidiaries’ actions. In its current form, the concept does not address the role of organizational values that may be embraced by a subsidiary but not by the
headquarters. We conclude that our findings fit best with a concept of institutional trinity, in which the adoption of routines by individual units is explained by three factors: The values of the host country, the values of the MNC’s headquarters and those of the subsidiary itself. This concept can help to reconcile the conflicting predictions of the literatures on institutional duality and those on entrepreneurial
ventures of subsidiaries (Ambos et al. 2010; Birkinshaw 1997; Rugman and
Verbeke2001).
Whereas the literature on institutional duality portrays subsidiaries as merely reacting to pressures either from headquarters or from their host country (or combinations of those pressures), the literature on dispersed corporate entrepre-neurship (or intrapreentrepre-neurship) attributes a higher level of agency to the subsidiaries themselves, and we define an MNC’s subsidiary initiative in line with that literature, as a ‘‘discrete, proactive undertaking that advances a new way for the corporation to
use or expand its resources’’ (Birkinshaw1997, p. 207). However, unlike previous
research our definition of the scope of such ‘proactive undertakings’ is not a new product introduction, a rationalization or some other activity aimed at increasing the corporations’ competitive advantage in the market. Instead, we study subsidiaries that use the resources available to them to ‘‘actively define, justify, and push the theory and values’’ that underpin the practices of a new institutional order (Rao et al. 2000, p. 241).
At the outset of our research we made certain assumptions about subsidiaries that display such agency in their institutional environments, which we summarize in the following paragraphs. Thereafter, we present the methods, results, discussion and conclusion of our research.
2 Initial Theoretical Perspectives 2.1 Institutional Theory and MNCs
At the beginning of our analysis we expected to find a corporate environmental strategy in place at the MNC addressing the complex and formally
institution-alized issue of climate change (Levy and Kolk 2002). Here, a corporate
environmental strategy ‘‘refers to a pattern in action over time intended to manage
the interface between business and the natural environment’’ (Sharma 2000,
p. 682). Previous research [such as by Christmann (2004) in the chemical industry] has suggested that MNCs operate centralized departments at their headquarters which develop such environmental strategies and then roll them out
to their subsidiaries (Jennings and Zandbergen 1995), which we define as any
operational unit controlled by an MNC and situated beyond the headquarters’
home market (Birkinshaw 1997).
But both Kostova and Zaheer (1999) and Hillman and Wan (2005) recognize that subsidiaries are exposed to isomorphic pressures both from within their own corporations, and stemming from their host countries, so that their
Husted and Allen2006; Ratiu and Molz2010; Sharfman et al.2004). We assumed that especially large subsidiaries need to respond to host country demands because they are particularly visible, and may therefore experience higher institutional
pressure than smaller subsidiaries (Delmas and Toffel2004). Clearly, pressures for
climate change mitigation may vary from country to country, and we also expected that subsidiaries based in countries where pressures are highest will be the most likely to implement climate mitigation activities.
2.2 Issue Selling
At the outset of our study we also assumed that the literature on issue selling— which Dutton and Ashford (1993) describe as ‘‘individuals’ behaviors that are directed toward affecting others’ attention to and understanding of issues’’ (p. 398)—would help us address our research question. We expected to find differences among subsidiaries in terms of how effectively they framed their responses to the institutional demands of their host countries, while also working to stay in line with the norms and values of their parent firm.
Bansal (2003) finds that actors frame issues that stem from the natural environment in line with (a) the individual’s concern about such issues (Sharfman
et al.2004), and (b) how consistent that response is with their organization’s values,
which Bansal (2003) defines as ‘‘first-order conditions that define organizational culture, identity, and other structural attributes of a social system.’’ (p. 519). Similarly, Howard-Grenville and Hoffman (2003) argue that ‘‘social initiatives become successful when they are aligned with an organization’s core culture because culture guides both what issues get attended to and how they get acted upon.’’ (p. 70). Based on this literature, we initially assumed that subsidiaries that engage in climate mitigation are subject to institutional duality and would be likely to exhibit three characteristics:
(a) They perceive high levels of pressure from their host country’s institutional
environments to adopt climate mitigation initiatives (Bansal and Roth 2000;
Delmas and Toffel2004; Sharfman et al.2004; Sharma and Vredenburg1998);
(b) They are large and highly visible in their host country, so experience more
demands to gain legitimacy there (Delmas and Toffel2004).
(c) They can frame their climate mitigation initiatives as being in line with the
organizational values of both the parent corporation (Yang and Rivers 2009)
and the norms and values of their host country.
3 Method
We started the analysis of the MNC from the theoretical perspectives presented above and iteratively added insights from our participatory observation to develop
more detailed and empirically grounded propositions (Bansal and Roth 2000;
3.1 Data Sources
We used a large set of diverse data to derive our findings, including extensive ethnographic participatory observation, interviews, and analysis of document contents. The participatory observation lasted from September 2007 to October 2010, during which time one researcher was located at the headquarters site of our focal auto multinational and was able to capture information on the phenomenon
under study from an insiders’ perspective (Mayring 2002). This is an important
feature of our research: We observed that other researchers approaching this MNC with questionnaires or interview inquiries during the period of our participatory observation were often only presented with publicly available information, and thus gained no inside views in their interviews with MNC employees. So we were in the unique position of being able to study the phenomenon under study (a) in its natural setting, (b) in real time, and (c) by gaining access to special references associated
with this phenomenon (Mayring2002; Punch2005).
The tasks of the researcher located within the manufacturer broadly related to the issue of climate change and its possible implications for the automotive industry and the MNC. We were granted access both to headquarters and subsidiaries, which enabled the researcher to familiarize himself with the organization’s daily work routine and ‘‘to learn about the activities of the people under study in the natural
setting through observing and participating in those activities.’’ (Kawulich 2005,
p. 2). During his daily work the researcher observed at first hand the national subsidiaries’ climate change initiatives, and discovered that these subsidiaries’ initiatives arose in an uncoordinated manner, as none of the subsidiaries we studied were aware of the climate change mitigation initiatives undertaken by other subsidiaries. By working both within the headquarters and with the subsidiaries, the researcher gathered first impressions about the circumstances that facilitated the subsidiaries’ initiatives: He gathered as much information as possible about these activities and established direct contact with the managers running them.
We also developed an understanding of the MNC’s organizational structure, and learned about the interplay of the headquarters and its national sales and distribution subsidiaries in managing issues at the interface between the organization and the natural environment. Working within the MNC the author established direct contact with the MNC’s Spanish and UK subsidiaries, both of whom engaged in climate change mitigation activities that—surprisingly—exceeded headquarters’ requests. We also studied the activities of the US-based subsidiary which (compared to those in the UK and Spain) engaged in less proactive climate change mitigation activities. This setting helped us to understand why initiatives were established in Spain and the UK, but not in other subsidiaries.
3.2 Interviews
We complemented our participant observation with 26 face to face interviews, lasting between 45 and 120 min, conducted in August 2008 and from March to
August 2009 (for an overview, see Table1). We contacted the regional managers
they overwhelmingly agreed. Interviewees were notified that the interviews were part of an external research project, and were conducted by the author working at the MNC. Consequently, one co-worker was interviewing another. Using the snowball principle, we identified further interviewees from our initial contacts’ suggestions. We also established contact with top managers and other relevant decision-makers at the subsidiaries to whom the initiatives had to be ‘sold’, who also agreed to be interviewed. The numbers of interviewees at the national sales and distribution subsidiaries differed according to their organizational setup: Most were with middle and senior managers. Our first headquarters interviewees were identified through professional contacts and subsequent respondents again via the snowball principle—most were middle managers.
The interviews covered general perceptions of how the issue of climate change was viewed by the headquarters, as well as how it was perceived at each subsidiary. We inquired into what had driven the subsidiaries’ climate change mitigation initiatives, into how the implementation processes were set up, who was involved and what kind of feedback the subsidiary, headquarters and stakeholders in the host country provided on the initiatives. As the research project progressed and we refined our initial assumptions, we increased the level of detail in our questions, looking for emerging patterns by asking interviewees if they could confirm
conclusions gained from previous interviews (Bansal and Roth 2000). Most
interviews (when permitted) were taped, or notes were taken by the interviewer, and transcribed directly afterwards: All our transcripts were made available to the MNC for review.
3.3 Data Analysis
Our data analysis followed an iterative process. In a first phase, we verified whether subsidiaries’ climate change mitigation initiatives were indeed proactive undertak-ings and not in response to institutional pressures by corporate headquarters or other MNC entities. One author brought an unbiased perspective to the interview analysis by not being present at any of the interviews. The authors screened all interview
Table 1 Interviewees by function and country
Function HQ Spain USA UK Total
Environmental manager/environmental specialists 3 – – 2 5
CSR manager/CSR specialist 2 – – – 2
Government affairs/external relations 1 – 3 – 4
Marketing/communications/press/public relations 1 1 1 1 4
Sales and distribution 1 1 – – 2
Product management – 1 – 1 2
Technical development/research and development 2 – – – 2 Other (e.g., management directors with cross-functions) 3 – – 2 5
protocols independently, each individually marking interview quotes that related to antecedents of climate change mitigation initiatives. In this first phase we also ruled out the possibility that the initiatives were conducted unreflectively, i.e., in mimicry of similar moves by other MNC subsidiaries.
We conducted the actual analytic induction process as our second analysis phase. Each researcher individually screened all interviews for evidence of circumstances that facilitated the implementation of subsidiary initiatives. To avoid losing information, these interview quotes were not aggregated at this point—instead, we individually attributed a label to each quote we identified. We then reviewed each quote together and harmonized the label wording, and then aggregated them into categories, which we compared, in an iterative process, to existing theoretical constructs in the literature. This process reduced the number of categories—as some related to the same theoretical construct—and continued until we had matched all our categories of quotes to concepts in existent literature.
The following section presents our findings confirming that the subsidiaries undertook these climate change mitigation initiatives independently of their headquarters strategies, after which we present our propositions on the antecedents of their initiatives.
4 Results
We began our study by researching whether the subsidiaries’ climate change mitigation activities were indeed initiatives and not activities mandated by headquar-ters. We noted that the relevant activities in the British and Spanish subsidiaries began in 2007, at which time the MNC’s headquarters was addressing the issue of climate change only by focusing on regulatory compliance. Two years after the subsidiaries established their initiatives, headquarters began to engage more actively in the
discourse on the natural environment, sustainability, and climate change (see Fig.1).
Over time, the subsidiary initiatives encouraged the headquarters’ marketing department to create a common communication strategy under which all the subsidiaries’ activities could be jointly communicated as initiatives of the MNC (rather than only of its subsidiaries). During our research, we observed the biggest shift at the headquarters on the climate change issue occurred in early 2010, when the MNC launched a new marketing campaign that moved away from a ‘hard’ focus on its cars and their characteristics, and instead focused on ‘softer’ topics such as the promotion of natural resource protection. Two marketing managers responsible for the campaign reported internally that a major impetus for establishing this campaign had come from the national sales subsidiaries’ initiatives—as one put it: ‘‘Without the subsidiaries’ initiatives, this [corporate] marketing campaign may not have been established.’’
Our interviews confirmed that the subsidiary initiatives deviated from what were the dominant headquarters values at the time. However, we found four characteristics of subsidiaries that facilitated these initiatives despite this HQ
attitude (see Fig.2), and which we describe in more detail in making the following
2006 2007 2008 2009 2010
Annual report: climate change mentioned in the context of alternative fuels and engine development
Mission statement: protection of the climate is a great ecological challenge for the 21st century.
CEO statement: “The future belongs to sustainable, low-emission mobility.” 10 20 40 30 50 Launch of a dealership forest to offset CO2 emissions from running car dealerships. Paid for by dealerships. 64,085 trees were planted.
95,459 trees were planted. Scoping of new activities in light of the UK Carbon Reduction Commitment. Broadened activities to
offset the CO2
emissions of the subsidiaries’ car park and certain events. 52,205 trees were planted. Environmental steering committee: monitoring of target achievement and target adjustment. Began to offer CO2
offsetting to end-use and fleet customers by starting with planting one tree per car sold. 2,671 trees were planted.. Assess carbon footprint and possible CO2
reduction measures. Formal establishment of an environmental steering committee.
Annual Report. “Our long-term goal is defined in our [strategy]: to turn the [company] into the world’s leading automaker – economically and ecologically.”
Launch of marketing campaign with a focus on environmental issues. Promotion of one of the initiators of the Spanish activities into the Top-Management at the headquarter. Environment Sustainability Climate change Headquarters Spain United Kingdom Number of p ress re leases
Fig. 1 Activities performed by the subsidiaries. Activities performed by the subsidiaries and headquarters between 2006 and 2010. The graph only shows the levels of engagement of the headquarters on the three issues of, a environment, b sustainability, and c climate change, based on information derived from a search of the company’s publicly available press release database for those search terms Subsidiary initiative Host country stakeholder pressures Employee interactions with external stakeholders
Small subsidiary size
Framing initiative to fit subsidiary’s values
5 Propositions
5.1 Host Country Stakeholder Pressures
Previous studies have confirmed that pressures in the external institutional landscape facilitate initiatives to protect the natural environment (Bansal and Roth 2000; Christmann 2004; Delmas and Toffel 2004; Kostova and Zaheer 1999;
Sharfman et al.2004; Sharma and Henriques2005). Since the car manufacturer we
analyzed is a global player—and therefore highly visible—we expected it to be exposed to pressures for climate change mitigation measures in its host countries which might result, for example, in national taxes on fuel or taxes on greenhouse gas emissions. The MNC headquarters would be aware of these national schemes, which would influence company decisions about which car models were launched in which countries. In addition to national regulators, non-governmental organizations (e.g.,
Greenpeace 2007, 2009) also pressured the automotive industry to demonstrate
engagement with the climate change issue. Our interviewees identified companies that buy car fleets (fleet customers) as another group which exerted coercive
pressure. As these observations (see evidence in Table2) were in line with our
expectations—and were consistent with earlier research—we suggest:
Proposition 1: Subsidiaries are more likely to implement climate change mitigation initiatives if they are pressured by host countries stakeholders. Private customers, in contrast, are not generally perceived as pressuring car manufacturers to reduce greenhouse gas emissions: In fact, however, we observed
that the subsidiaries’ climate change initiatives—for example the CO2 offsetting
scheme in Spain—resonated overwhelmingly with private customers. These initiatives are neither targeted at nor responded specifically to the prevailing local regulatory or fleet customers’ pressures. We do not believe the levels of host country pressures alone could consistently explain why some subsidiaries imple-mented such initiatives—our following propositions attempt to explain these findings more fully.
5.2 Employee Interactions with External Stakeholders
We observed that employees from those subsidiaries which implemented initiatives proactively differed considerably from those at their more reactive counterparts in terms of their levels of direct interaction with their external stakeholders. We noted that a higher proportion of employees of those subsidiaries that implemented climate change initiatives (in Spain and in the UK) interacted with external stakeholders than in the US subsidiary, where this share was lower. These interactions enabled the employees to identify issues relevant for their subsidiary.
Our interviewees from these proactive subsidiaries referred often to their interactions with fleet and corporate customers, with motor press journalists and
with non-governmental organizations (see evidence in Table3).
Some interview partners acknowledged that a possible motive for fleet customers putting pressure on their car supplier might have been to transfer the pressure they
were themselves exposed to, as similarly large and visible corporations. One interview partner from the headquarters said:
Our large fleet customers experience pressure for green procurement themselves and they pay attention to their environmental image. Therefore the choice of fleet cars is also made on environmental criteria.
and a Spanish interview partner pointed out:
They [fleet customers] can sell internally that they are environmental friendly to their customers and their employees.
We also observed that fleet customers asked for a range of environment-related
data in their tenders, including, for example, the actual CO2emissions involved in
car’s construction life cycle up to delivery to the customer, as well as key performance indicators on its later recyclability. In requesting such detailed information, fleet customers differed substantially from private end-users.
We also observed that the employees who interacted directly with external stakeholders were able to mediate their unit’s perceptions of the climate change issue, transmitting an understanding of the urgency and relevance of stakeholder demands back to their subsidiaries, and raising the level of recognition of climate
change as an issue there (Andersson and Bateman2000; Dutton et al.1997). As one
of the managers leading the Spanish initiative pointed out:
We went to a lecture given by Al Gore here in Barcelona. There we learned
about climate change……. and started to become conscious of the problem.
The lecture helped us to be more committed towards the idea we were planning and to believe in [it]. (Spain)
Given this evidence, we argue that:
Proposition 2: Subsidiaries with higher proportions of employees who interact with external stakeholders are more likely to implement climate change mitigation initiatives.
5.3 Small Subsidiary Size
Our data analysis further suggested that independent initiatives are more easily established in smaller subsidiaries, an observation which appears to contrast with earlier research. Wan and Hillman (2006) argue that a large subsidiary is ‘‘more likely to act independently by advancing its interests in the host country with less
accountability to the parent’’ (Wan and Hillman2006, p. 91). However, we suggest
that the process of ‘selling’ the initiative internally may be easier in smaller
subsidiaries (Dutton and Ashford1993), since their smaller number of employees
and the fewer hierarchical levels may lead to increased contacts between employees and its top management. In such situations, issue sellers are more likely to (a) have a feeling for how to package the issue as attractive to focal decision-makers and (b) face fewer hierarchical levels to which they need to sell the issue (Andersson and
Tabl e 2 Evi dence for host co untry pre ssures Sour ce of external pressur e Exem plary quote Subsid iary locatio n Regu lator y pressure The ministry and oth er gover nment bodies are qui te serious contender s [in terms of influen cing a climat e strat egy] U K Fl eet custom ers Corpora te custom ers wit h their ow n program s o f envi ronment al respons ibility exam ine [o ur] envi ronme ntal cred entials U K Some fleet custom ers are askin g about our subsidi aries envi ronment al polici es U K Obviousl y w e have variou s fleet compani es who are qui te influen tial, rega rdless of the topic, and cert ainly shape our respons e to the climat e change issu e UK It depend s o n the type of custom er. Fle et and large com mercial cu stomers as w ell as publ ic custom ers fo cus in de tail on the envi ronme ntal aspects of our cars, which relates to gre en procure ment HQ Pri vate custo mers The mental ity of the [pr ivate] co nsumer is still quite far away from that [enviro nme ntal issu es] Spai n The private custom er is not as concer ned as we expect. A t this momen t the opi nions of custom ers her e in Spain are very influen ced by the media Spai n Private custo mers look for prices and/ or the relationshi p between qual ity, perfor manc e and price Spai n For the pr ivate custo mer, ultimat ely the pr ice matters Spai n
Tabl e 3 Evi dence on the import ance of employ ee inte ractions w ith external stakeh olders Impo rtance of int eraction with external stakeh olders Exempl ary quot e Subsid iary locatio n Bu t when Al Gore came to Barcelona and he mad e his speech, his famou s speech, w e had five people who went there, and hea rd him: we said: wow, this is ser ious Spain For us it is key to par tner wit h our custom ers. You see, in our subsidi ary, we don’t build cars— this makes our sales job more diffic ult. The too l that has help ed to gain vis ibility was [the com pany], which onl y runs our bra nd. Their business is expa nding in London, a city which is anti-c ar, has high parkin g char ges which are linked to CO 2 . That [comp any] beca me a partner w hen we laun ched a new mo del on the U K market UK My man ager is obvi ously quite w ell engaged with the govern men t such as DEFRA [the Bri tish Envir onment al Minis try] which are a regulat ory body . W e are also in dis cussion wit h the D epartme nt of Tr ansport, bec ause they shape the UK ’s transp ort policy UK I suppose really it is importa nt to talk to the people and retailers to se e what they … what questio ns are being as ked, and to make sure that our local sa les staff are adequat ely equipped to answer them UK Ther e are variou s non-g overnme nt group s that we are involv ed with UK
fitted the subsidiaries we observed which pursued climate mitigation initiatives. Our interviews also indicated that it was easier to set up interdisciplinary teams in a small local subsidiary, where fewer people are needed to evaluate how such an initiative might affect its different domains, so the decision making process is simpler and the internal transaction costs involved in establishing the initiative are lower than in larger subsidiaries. Given the evidence we observed (such as that
presented in Table4) we conclude that:
Proposition 3: Smaller subsidiaries are more likely than larger ones to implement a climate change mitigation initiative.
5.4 Framing the Initiative to Fit Subsidiary’s Values
Prior to our data analysis we expected MNC subsidiaries to frame their new initiatives in line with the prevailing organizational values at their headquarters. But in the large car manufacturer we examined these values did not support proactive climate change mitigation activities, as became evident from our interviewees’ statements about the different perceptions of climate change at headquarters and
subsidiary levels (see Table5). At the time of our research, headquarters was
largely perceived as being reactive on the issue, but very different sets of organizational values on climate change were evident at the more proactive subsidiaries, where the topic was considered important.
Our participatory observation confirmed the statements of our interviewees. We noted that the senior HQ management had been asked in previous years if the MNC would be willing to sponsor events at the United Nations Framework Convention on
Climate Change (UNFCCC2010), but had turned such approaches down on more
than one occasion. This contrasted markedly with the stance of the Spanish subsidiary, which financially supported an event involving Al Gore that focused on the issue of climate change and the urgency of responding to it. Further evidence of differences between headquarters’ and subsidiaries’ organizational values includes the fact that some of the latter offered carbon offsetting mechanisms to their private customers. During our participatory observation period an initiative was proposed at headquarters to promote a carbon offsetting mechanism across the whole corporation, but was rejected by top management. Nevertheless, the number of subsidiaries offering carbon offsetting has increased, with positive local senior management involvement and support.
While those headquarters interviewees who had individual concerns about the climate change issue proved unable to initiate activities, the picture was very different at the subsidiary level, where we found evidence for both of Bansal’s (2003) preconditions for the successful framing of ecological issues: Individual concern over the issue, and organizational values that were consistent with the proposed responses. But while Bansal (2003) assumes that there is a common set of organizational norms in an MNC, we saw that values at headquarters and at its subsidiaries were clearly not identical. We found that the framing efforts of those concerned about climate change were congruent with the organizational values of some individual subsidiaries, but not with overall organizational values as
Tabl e 4 Evi dence of the im portanc e o f sm all subsi diary size Impo rtance of sm all subsidi ary size Exem plary quote Subsid iary locatio n It was a team of five people, ini tially, who start ed these cli mate activities Spain Then we all—t hat is the five person marketing team—went to meet wit h the Al Gore’s team [… ]. We were all convince d aft er that meetin g so it became eas y to convi nce the res t o f u s in Spai n Spain We are a small team here , the project team mem bers have known each other for a lon g time, as w e have been w orking w ith the same peopl e her e in our subsidi ary for the past ten or twelve ye ars. The rela tionship between us an d our interna l co llaboration has been very good . Also , our boss has bee n the same Spain And we are very few peopl e [h ere in Spain] and have very big tar gets so we … have a very fast w ay o f worki ng and gettin g thi ngs de cided Spain My per sonal work tasks relate to the work of at least three spec ialists at headqu arter s. So I have a w ider res ponsibili ty and can decid e qui cker Spain A lot of things [in the UK subsi diary] are done by a really small number of peopl e U K
Tabl e 5 O rganizatio nal value s o n the issue of climate change at the time of our res earch Rele vant orga nizatio nal va lues Exempl ary quot e Subsid iary locatio n O rganizat ional value s o n the issue of climate change at the headqu arters It is difficul t at times to place the issue of cli mate change, since the co rporate man agem ent is in love with cars and therefor e emp hasizes other aspects than CO 2 emissi ons HQ There is no officia lly appr oved state ment on climate change , as climate cha nge is not par t o f our core business HQ Sub sidiaries’ perception of headqu arters organi zational valu es on climat e change It depend s o n where we w ant to be! You know, if somebod y o n the top says, this is crazy, we are [comp any name ], we should be No. 1 in the world , w e should be the best author ity on enviro nmental issu es, the people should come to us when they want a good hones t opi nion about what is happen ing, that is gre at, then we could do it from now … we can do activities others could not . But if we don’t know where we are going, things get decid ed whil e w e are not knowing w here to go – and then it becom es ver y difficul t fo r us to step in UK Bu t I don’t know how stron g the gr oup w ants to be on en vironm ental issu es UK I mean , for ins tance, yesterd ay when I sat and li stened to many of the en vironm entalists say, the debat e is over on climat e change, it is her e, you know, it is urgent! We nee d to d o som ething about it. I guess I don’t know fro m the compa ny’s perspective—do we agree w ith that? Is it as critical as the envi ronme ntalis ts are sayin g? It is not clear to me. Because w e get confl icting informat ion USA Wher e our com pany is [regard ing climat e ch ange]—I don’t know. It is difficul t to say bec ause I am not sure exactly w hat our company is tod ay UK Because w e are probab ly not sure if that ge nerally fits [our environm ental progra m with the HQ], because unfortunat ely we ha ve not real ly found one there UK The ru le I followe d: [co mpany nam e] does not com ment on climat e change UK I d o not know the compa ny’s of ficial position on the issu e o f climate of change. I woul d hope we have one Spain
Tabl e 5 cont inued Rele vant orga nizatio nal va lues Exempl ary quot e Subsid iary locatio n O rganizat ional value s o n the issue of climate change at the subsidi aries And then the sales departme nt of our subsi diary was also convinced and then we had to convince the boss. But the boss clearly saw that we w ere co nvinced. So he said, if you are so convinc ed then that this is good for us, for the climate change and so on, then let’s go on Spain So he [the managin g direct or of our subsi diary] has positione d it firmly as part of his age nda for the business. So it then becom es easier to have that discu ssion with som ebody because they have see n that, no matter w hat, the top is interested in this as a topic UK It is not the cas e that the cli mate cha nge is som ething that som ebody has inve nted—i t is real Spain No, I think it wil l b e quite inter esting that you also approa ch the import ers to know a little bit of our reality he re in Spain— what we are, how w e work, w h o w e are and that w e are very foc used here Spain
represented by the headquarters. Unlike the ‘lonesome warriors’ of individual headquarters managers who wanted the company to engage in climate change mitigation efforts, it seems subsidiary managers were able to align their organizational subunit’s activities with their personal values. We summarize these findings as follows:
Proposition 4: A subsidiary is more likely to implement climate change mitigation initiatives if these fit with its own organizational values.
6 Discussion
Our findings depart from those of previous studies which report that MNCs define their environmental strategies at headquarters and then roll out associated practices
to their subsidiaries (Delmas and Toffel2004; Christmann 2004; Christmann and
Taylor 2001). Searching for an explanation to the different approaches of
subsidiaries and their headquarters on the issue of climate change, we note Levy and Rothenberg’s (2002) argument that companies interpret their ‘‘institutional environment through a unique lens, a product of its history, organizational culture,
and market positioning’’ (Levy and Rothenberg 2002, p. 176) and, accordingly,
argue that subsidiaries can interpret their own external institutional environments differently from headquarters.
Our findings both challenge and extend previous research in three ways. First, we observed that the subsidiaries that implement initiatives in the institutional environment tend to be smaller, a result which departs from previous studies
(Hillman and Wan2005; Wan and Hillman,2006). In institutional literature, it is
commonly accepted that large organizations are more visible and therefore exposed
to greater institutional pressures (Meyer and Rowan 1977), and the idea that
organizations’ strategic responses to institutional pressures become more responsive
as those pressures increase is rarely challenged (Goodstein 1994; Oliver 1991).
However, we question the routinely accepted implication that large subsidiaries are more responsive to institutional pressures than small subsidiaries, and suggest that a field’s maturity needs to be given more attention before such conclusions can be made. Institutional change may be initiated in mature organizational fields by
powerful actors at the fields’ centers (Greenwood and Suddaby 2006). But in
emerging institutional fields, it may be those actors at the edge of the field who
initiate change (Maguire et al.2004). In our research setting, the small subsidiaries,
which were at the edge of the MNC’s field, appear to have enjoyed the freedom of their non-centrality to initiate change in their responses to an environmental issue. It is these subsidiaries that may have both a bridging position at the edge of their intra-organizational field and the necessary resources to address such issues. Thus, it may be that the small subsidiaries of large MNCs display the highest level of agency and responsiveness to the institutional pressures they find in their host countries.
Second, we confirm the importance of framing an issue in ways that align with
organizational values to gain internal support for responding to it (Bansal 2003).
values in the MNC, our findings show that a subsidiary’s values may differ from those of its headquarters. In a situation where the headquarters provides no clear guidance, we observe that subsidiaries’ actors can frame issues in line with the organizational values of their subsidiary. This implies that there may be a hierarchy of organizational values for the purpose of framing. Possibly, successful actors prefer to frame initiatives along the organizational values of their powerful parent company, which would align with Bansal’s (2003) argument. However, when the relevant values at the headquarters are not yet well established, local actors in subsidiaries may prefer to frame their initiatives according to their own organiza-tional values. Here, a subsidiary can play a very important role in the overall MNC, by filling an ‘institutional void’ as yet unaddressed by organizational values at headquarters.
Third, the considerable complexity of organizational values that we observe also holds implications for the concept of institutional duality. While we initially based our research on this concept, we believe that the two poles of the duality—pressures from headquarters and pressures from the host country—were insufficient to explain the variation we observed in the implementation of initiatives. Forsgren, Pedersen and Foss (1999) attribute more freedom in decision-making to subsidiaries than the concept of institutional duality suggests, and argue that they can take on a more strategic role than being ‘‘a mere implementer of a parent company’s decisions’’
(Forsgren et al. 1999, p. 182). We support this position, and recognize both the
agency of subsidiaries as well as their institutional embeddedness in their local host countries. However, rather than rejecting the concept of institutional duality we suggest an extension—‘institutional trinity’—that clearly distinguishes between (1) the norms and values of the headquarters, (2) the norms and values of the subsidiary and (3) the norms and values of the latter’s external institutional environment. Our case study demonstrates that such a concept is better suited to explain subsidiaries practices than the current institutional duality model. This expanded concept can also help reconcile the conflicting predictions of institutional theory in the context of MNCs with those of the literature on subsidiaries’ entrepreneurial activities
(Ambos et al.2010; Birkinshaw 1997; Rugman and Verbeke 2001; Tallman and
Chacar2011). While this literature recognizes that subsidiaries have their own set of
organizational values, it does not account for the roles of pressures existing in host countries or those originating from headquarters. The extended concept we suggest may be a starting point from which to build a bridge between these two previously separate literature streams on MNCs.
7 Conclusion
Our study contributes towards understanding under which circumstances subsidi-aries define and implement initiatives that deviate from their headquarters’ organizational values. We find that pressure from stakeholders alone is insufficient to explain why some subsidiaries engage in initiatives in the institutional environment. On the one hand, the structure of the subsidiary influences its responsiveness to institutional demands—specifically, small subsidiary size and a
high proportion of employees exposed to external stakeholders facilitate the subsidiary’s agency in its institutional environment. On the other hand, we observe that framing an initiative in line with the subsidiary’s values is critical for its actual implementation.
7.1 Future Research
The limitations of this study provide some suggestions for future research. First, our study was limited to observing one case in depth, thus our sample consists only of managers from one corporation which operates in one industry. So we are unable to report whether our findings are specific for the automotive industry or might be replicable in other sectors: Future quantitative research should therefore test our propositions in different industries.
Second, we were unable to account for financial performance differences between the different subsidiaries. It may be the case that more financially profitable subsidiaries have greater leeway in taking initiatives than others. We also highlight that, at the time of the study, the subsidiaries we investigated were pursuing their initiatives on climate mitigation while facing a rather difficult market situation, with both sales and profits declining: This point is worth mentioning as previous literature has suggested that such initiatives are more commonly undertaken when both the company’s financial situation and the economic setting in which it operates
are favorable (Campbell2007). In addition to these factors, differences in legal or
cultural environments may also have a moderating effect on the implementation of subsidiary initiatives—future quantitative research could assess different cultural contexts and verify how they might moderate the implementation of subsidiary
initiatives (cf. Steenkamp and Geyskens,2012). Differences in legal environments
(such as national climate policies) should also be controlled for in quantitative research.
Finally, our research focuses on an emerging issue—climate change: Its findings may not be readily transferred to subsidiaries’ initiatives in more mature organizational fields. Our paper investigates why some subsidiaries begin initiatives to address that specific issue, but it is beyond its scope to detail the subsequent process of how these initiatives then facilitate change in other subsidiaries or at the MNC’s headquarters. But whether and how such initiatives are taken up company-wide would be worth investigating, as we believe such deviations of organizational values can be a valuable source of the development of dynamic capabilities at the corporate level.
7.2 Managerial Implications
Our study leads to three recommendations for MNC managers. First, its shows the benefits of a corporate culture that is not monolithic and over-prescribed by headquarters. The MNC in our study allowed its subsidiaries to develop their own sets of values: This latitude meant that they already had values that enabled them to respond swiftly to an emerging issue in their own institutional environments. Second, our study suggests that headquarters’ monitoring of subsidiaries should
enable them to recognize when their activities might be a source of innovation for overall corporate strategy. Subsidiaries may either identify certain issues as relevant at an earlier stage than headquarters, or identify additional aspects as relevant for the overall organization. Third, we recommend that MNCs’ headquarters should explicitly encourage their subsidiaries to take on proactive roles in ‘pioneering’ strategies at the local level. Their location in certain restricted market environments, and at the periphery of the MNC’s fields, can allow subsidiaries to test ideas and develop capabilities which may later become valuable for the whole corporation.
We believe our findings call for a stronger focus on individual subsidiaries and their potential as change agents to address issues in their institutional environments.
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